Northampton Landlords and Second Homeowners Will Probably Save Money from the Proposed New Capital Gains Tax changes
If the proposals were adopted in full, some Northampton landlords would pay £10,000 less Capital Gains Tax than they would currently
The government borrowed £394bn this financial year (April ‘20 to April ‘21). This figure does not include the cost of November lockdowns and support measures, which means the final bill will probably be over half a trillion pounds. Ultimately these billions will need to be paid back to cover the cost of Coronavirus.
The Office of Tax Simplification (OTS) published a report for tax reform and, as was predicted by many in the press, the Government Dept suggested the Chancellor contemplate readjusting current Capital Gains Taxation (CGT) rates with a person’s own Income Tax rates. This would mean increasing the rate of CGT for selling a buy to let property from 28% to 40% for high-rate taxpayers and 45% for additional rate taxpayers. To add salt to the wound, the OTS is suggesting cutting the £12,300 annual CGT allowance.
This has led to many Northampton buy-to-let landlords contacting me in the last few weeks, wondering if this is the time to exit the Northampton buy to let property market, especially as they have been hit by growing levels of rental legislation and higher taxes.
With tax bills about to go through the roof, is this the time to leave the Northampton buy to let property market?
Yet, like all things, the devil is in the detail as Northampton 2nd homeowners and Northampton landlords may well finish up having lower CGT tax bills with these new taxation proposals, even though the CGT restructurings are being introduced to raise the much-needed cash for the Government.
Apart from the suggested cut of the annual CGT allowance and increase in the CGT percentage rates, the OTS report also proposed reintroducing rebasing and indexation. In layman’s terms, the OTS are suggesting all gains made before 2000 would not be taxable (rebasing) and any capital gains would be calibrated to account for inflation.
So, what would that actually look like for a Northampton landlord? Let us assume we have a Northampton landlord who bought a Northampton buy to let property in 2000.
Under the current CGT rules
Under the new proposed CGT rules
Under the new proposals, the CGT payable (assuming the CGT rate of 40% and a lower annual allowance of £5,000), the same Northampton landlord would only pay £37,807 – a saving of almost £10,000.
And the savings don’t stop there. Remember, under the new OTS proposals, all capital gains made before 2000 would also be tax-free.
However, let us not forget the responsibility of the OTS is to report on tax simplification opportunities, not to set Government taxation policy. None of us have a crystal ball on what Rishi Sunak will do with CGT on buy to let property or second homes. Although, as time has always taught us with investments, often the worse thing to do is to make impulsive decisions on what MAY happen.
You have to remember, CGT only gets charged when you sell or transfer your investments, and most people use their rental investments to provide their income. If you did sell up, the best 90-day building society accounts are obtaining 0.8% pa, the stock market is a rollercoaster (good luck with that) and Government 10-year bonds are paying a princely 0.324% pa … where else are you going to invest to get the income Northampton property investments provide?
Property is an asset you can touch, feel and ultimately understand. Maybe, this is the time (if you haven’t already) to take portfolio advice on your Northampton buy to let investments? Many Northampton landlords do so, whether they use our agency, another Northampton agency or you manage your property yourself. The service is free of charge, we don’t need to meet face to face as we can do it over Zoom and it’s all without obligation. I promise to tell you what you need to hear - not what you want to hear ... what do you have to lose?
The 2020 Review of the Northampton Property Market
Looking back at the Northampton property market for 2020, it can certainly be seen as a frenetic game of two halves, albeit with a very long half time in the spring. Between the General Election in mid-December and Christmas, many Northampton agents saw an unusually higher uplift in activity in the property market just as we were getting ready for Christmas 2019. Yet once the New Year festivities were out of the way, that pre-Christmas uplift in the local property market was nothing when compared to the bang on Monday 6th January 2020 with the fabled ‘Boris Bounce’ of the Northampton property market. January, February and most of March were amazing months, with the pent up demand from people wanting to move from the Brexit uncertainty of 2018/9 being released in the first few months of 2020.
The pandemic hit mid-March, and the Northampton property market was put on ice for nearly three months (as was almost everyone else’s lives). Yet at the end of spring, the property market was one of the first sectors of the economy to be re-opened. Every economist predicted house price drops in the order of 10% in the best-case scenario and 25% in the worst yet nothing could be further from the truth.
When the lockdown restrictions were lifted from the property market, those three months allowed Northampton homeowners to re-evaluate their relationships with their homes. The true worth of an extra bedroom (for an office) became priceless, as people working from home were having to take calls and work from the dining room table. Northampton properties with gardens and/or close to green spaces all of a sudden became even more desirable. More fuel was put on the fire of the Northampton property market with the introduction of the Stamp Duty Holiday, meaning buyers could save thousands of pounds in tax if they moved before the end of March 2021. This changed the local property market and now …
Property values in Northampton are set at 0.1% lower today compared to a year ago.
The fallout of that increased demand for a new home meant those Northampton properties on the market coming out of lockdown in early summer with those extra rooms and gardens were snapped up in days for ‘full’ price. Northampton buyers were having to spend their Stamp Duty savings on paying top dollar for the home of their dreams. Yet the increased number of properties coming onto the market in the late Summer quenched a lot of that demand and the prices being achieved became a little more reasonable and realistic. This increased the number of properties sold (stc), so much so that, nationally, almost two thirds more homes have been sold (stc) than would be expected at this time of year!
However, as we all know, just because a property is sold (stc), it doesn’t mean the property is actually sold. The number of people who have moved home in the last 12 months in Northampton, is as you would expect, much lower. Over the last 10 years, on average 4,376 Northampton homes have changed hands per year, compared to only 1,869 Northampton homes in the last 12 months.
So, what is a Northampton property worth today? Drilling down to the four types of homes locally, some interesting numbers appear. Looking at the table, you can see what the average property types are worth locally, and within each type, the average price paid in the last 12 months. (So, if the average price paid for the last 12 months is higher than the overall average, that means more higher priced property in that type has sold in the last year compared to the overall average – and vice versa).
Of course, these are overall average values. To give you an idea what Northampton properties are selling for by their square footage, these are those averages …
So, what about 2021? Well normally when the country’s GDP drops like a stone (as it did in the Summer of 2020), the property market follows in unison. Yet as the economy went south, the house price growth and activity in the property market went north. This would appear to be a quite remarkable outcome given that economic framework, but it is gradually becoming clear that, as far as the Northampton property market is concerned, people’s time in lockdown has been spent reflecting on what they really wanted from their home and has meant that the normal rules of the game simply do not apply…. for now.
As Northampton First-time Buyers are Being Locked Out of the Northampton Property Market – Rents Have Risen by 5.4%
With the banks reducing the number of low deposit mortgages (i.e. deposit of 10% and below) since Covid-19 hit in the spring, this has meant that the number of Northampton first-time buyers has been decreasing quickly, meaning many of those would-be Northampton buyers wanting to make the first step on the Northampton property ladder will stay in the Northampton rental sector.
This has caused demand to grow amongst Northampton renters for larger homes to ride out Covid, as they hunker down for the long haul to wait for normality to return to the property market. This has caused
Northampton rents to rise from £669 to the current £705 per month over the last 12 months, an increase of 5.4%.
Interestingly, the opposite is happening in Central London, where the rents tenants are having to pay have dropped by 3.8% in the last 12 months, as demand has dropped like a stone. It appears Central London tenants are looking to move out to the suburbs, in search of bigger homes, gardens and green open spaces. For example, the average rent for a 1-bed apartment in St. John’s Wood currently stands at a very reasonable £1,817 per month whilst a 2-bed apartment in Kensington and Chelsea is currently at an average bargain rent of £3,715 per month (yes, they might be low compared to last year, yet for us in Northampton, that still seems like a lot of money!). Also, there has been further downward pressure on Central London rents, as many Airbnb landlords have dumped their short-term holiday let properties onto the long-term rental market as the tourism in the capital has dwindled because of the pandemic.
This has been the sharpest drop in Central London rents since the summer of 2009, when the property market was still stumbling from the Credit Crunch.
This means there is a reverse of the trend of the 2010’s (2010 to 2018 to be exact), when initially the London property market was shooting up whilst the rest of the country was in the doldrums. Then, when the rest of the UK did start to rise slowly in 2013, London kicked on even further like a rocket … yet now it appears the opposite is happening.
Getting back to Northampton, according to the Land Registry property values currently stand 0.1% lower than a year ago; this is split down as follows:
Yet, do remember, these figures do NOT take into account the prices paid by desperate Northampton buyers this summer, often paying top dollar to secure the property. This will only filter through in the figures released in the spring.
So, why are the banks curtailing the number of low deposit mortgages, meaning that first-time buyers must find a much larger down payment before they are able to buy their first Northampton property?
The reason is the banks are fearful of a house price crash in 2021 (although if you recall I wrote about that a few weeks ago and the reasons why that is less likely to happen). They too are afraid of the frothy nature of the property market since the end of the first lockdown in late spring. The bank is lending its own money to buyers and no mortgage lender wants to be holding an enormous amount of these types of high percentage mortgages if house prices fall in 2021, because the bank would be saddled with negative equity and repossession on their hands (and we all know what that did to the housing market in the late 1980’s and early 1990’s as repossessions rocketed).
This can quite clearly be seen in the pricing and availability of low deposit mortgages. As the Bank of England has reduced its base rate to 0.1%, in the last 12 months 10% deposit mortgages rates have actually increased from 2% to 2.8%. Also, when lenders have been offering 10% mortgages throughout the summer, borrowers have had only a 24-hour window to commit before the lender withdraws the mortgage product from the market because of over subscription. As with all economics, if demand is greater than supply, the price goes up. That extra 0.8% doesn’t sound a lot until you realise a first-time buyer would have to pay an additional £167 per month in interest payments on a 10% deposit mortgage, assuming they borrowed £250,000.
However, it’s not all doom and gloom for first-time buyers as there are embryonic signs that the 10% deposit mortgage market could gradually be returning to normal, as I have recently heard some lenders taking up to a week for their 10% deposit mortgage offers to run out. Fingers crossed!
So, what does all this mean for Northampton landlords? Those Northampton landlords with properties with gardens and larger rooms will be seeing increased demand. The ability to have pets in the rental property is also an advantage, and depending on the property, can add a decent premium to the rent that can be charged.
One final thought though for all homebuyers in Northampton, be aware it’s going to be very challenging to get your house purchase through in time to meet the 31st March 2021 stamp duty holiday cut off if you are starting the process in November. Make sure your lender and solicitor have the capacity to meet that deadline and when you are asked for information, you drop everything to provide it. The odd days’ delay here and there will mean the difference between you getting the keys for your new Northampton home before the end of March 2021 and saving thousands of pounds in Stamp Duty Tax … or feeling a fool from the 1st April 2021 and having to pay the tax!
Each Northampton landlord could be hit by a £25,534 bill ...
and the 5 ways on how all Northampton landlords can escape the worst of the coronavirus downturn on their Northampton rental property.
With the second lockdown starting on the 5th November 2020, does this mean Northampton landlords can wave goodbye to their Northampton buy-to-let investment and see it go up in smoke on the bonfire of buy-to-let dreams, like a Guy Fawkes puppet?
With many Northampton tenants at risk of losing their jobs after the furlough scheme ends next March and as the reverberations of the coronavirus recession hit this winter, what does this all mean for Northampton landlords and what can they do to mitigate the risks?
Since the spring, most Northampton tenants and buy-to-let landlords have been protected from the coronavirus crisis thanks to the banks with their mortgage payment holidays and job support schemes.
Before the second lockdown was announced on the 31st October, it was expected, that as the furlough and mortgage payment holidays were due to finish on Halloween, there would be some serious fallout from those schemes finishing. One silver lining from the lockdown (if you can call it that) is that mortgage payment holidays and furlough have been extended, yet does all that just kick the can down the road?
The question is, what can Northampton landlords do to mitigate the financial risk on their Northampton buy-to-let investment?
Billions of pounds are being spent by the Government to help those people whose income has been hit by coronavirus. The better Northampton letting agents and self-managing landlords are supporting, guiding and helping those Northampton tenants in financial difficulty to gain a better understanding of the Universal Credit (UC) processes, systems and payment levels, to enable their tenants to pay the rent and ultimately indirectly, help their Northampton landlord. Also, if you are a Northampton tenant, and that support isn’t given when you ask, don’t forget Northampton Borough Council do hold special cash reserves for discretionary housing payments, which can be utilised to close the gap in rent between what UC pays and your current rental commitments. Also, the Government’s Money Advice Service and Citizens Advice are a good online resource for you to find out what you are entitled to.
Demand for gardens or office space means Northampton landlords will need to think outside the box. Those Northampton homes with tenants sharing (e.g. HMO’s and shared houses) might need to price their pre-coronavirus 4 bed sharing house to say maybe a 3 bed sharing house plus a work/office room and, if you haven’t already, installing a top of the range, fast and dependable internet connection could be the thing that swings it. Outdoor space and gardens are really high on Northampton housebound tenant’s wish lists, in fact I have come across some Northampton tenants demanding that new rental properties have a landscaped garden or those that bought a dog or cat for company during the first lockdown, are looking for their Northampton landlords to relax their ‘no pets policy’.
Those Northampton buy-to-let landlords with decent tenants, who find themselves in financial dire straits should consider attempting to keep them, even if their own monetary circumstances mean they have to decrease their rent somewhat over the short term. Now of course, I would expect tenants need to prove their circumstances, yet if their plight was real, surely it would be a wise choice to reduce the rent by perhaps £50 a month and support your tenants? You know they are taking great care of your Northampton rental property and rather than risk the issue of advertising your empty buy-to-let property – particularly when there is no assurance you will achieve your existing rent and ultimately risk drawn-out void periods with no rent coming in at all. What I would suggest therefore, in such circumstances, is that you create a new Assured Shorthold Tenancy agreement with a longer term with your existing tenant at a lower rent – a temporary measure but with peace of mind for both parties which can then be reviewed once that tenancy is up for renewal.
Many private Northampton landlords and a few slipshod Northampton letting agents tenant checks are somewhat lacking in their depth. Trust me, there is tenant referencing … and then there is ‘proper’ forensic tenant referencing. As certain parts of the British economy have been hit harder than others, Northampton landlords must consider when choosing their new tenants, the type of work they do or who their employer may be, to enable them to decide on their future capacity to meet their rental commitments.
There are still insurance companies offering landlord rent guarantee insurance if your tenants become unable to pay the rent. Many insurance firms removed these insurance products in the first lockdown, yet some have returned to the insurance market although insurance premiums have gone up in price. Remember to check the small print of the insurance, although you will get a lower insurance premium if you can show stringent tenant referencing (as per the previous point).
The Nuclear Option - Eviction
Northampton landlords need to be conscious that, should their tenancy run into trouble, the Government have changed the rules when it comes to eviction during the coronavirus pandemic. Going into the first lockdown, there was already a backlog in the courts and now, just before going into the second lockdown, bailiffs have been instructed not to enter rental properties in high risk Tier-2 and Tier-3 Covid-19 areas.
Eviction really does have to be the very last option. Negotiation or arbitration will nearly always deliver quicker and improved outcomes for both parties. Northampton landlords who do come to mutually agreeable arrangements with their tenants by briefly reducing the rent, or allowing payment holidays with legally enforceable pay back schedules should ensure they get the agreed terms in writing and run by a solicitor or their agent (feel free to drop me a note if you need advice).
However, if eviction is required, it doesn’t mean the tenant gets off ‘scot free’. Evicted tenants, depending on their circumstances, will either be placed temporarily into an inexpensive B&B, asked to move in with family or given one of the local authorities temporary accommodation properties, with the goal to then move them into long term council accommodation (as the chances of obtaining private rented accommodation would be slim with agent’s heightened reference checks – more of that at the end).
The Potential Cost of Evicting a Problem Northampton Tenant
The average rent for a Northampton property currently stands at £705 per calendar month.
Thankfully, evictions are very rare. Last year before lockdown, tenants from 201.4 rental properties were evicted each working day in the UK ... but if yours was one of those, that is still a potentially large cost.
Working on the basis that most evictions from the first rent not being paid, through to eviction, refurbishment of the kitchen, bathroom, carpets and décor (because often these do need sorting/replacing) were taking on average between eight to nine months before coronavirus hit, (plus the mortgage payments), this means a Northampton landlord could be hit by a £25,534 bill, broken down as follows:
What that would be now is anyone’s guess – yet it could be a lot more.
This is why it is so important to get the best tenant from day one. Many Northampton tenants, who know they wouldn’t pass the references of letting agents, are attracted to those private landlords who don’t use a letting agency, as they know their referencing checks are not as strict and may be a softer touch. That’s not to say going with a letting agent is a guarantee you won’t need to evict; it just means the chances are much, much smaller. Like anything in life - it’s a choice.
Whether you are a Northampton landlord who uses a letting agent or not and feels their reference checks are not to the standard or level you might hope or if you want a chat about the best rental guarantee insurance, then give me a call ... what have you got to lose?
Northampton House Prices 2021:
What will happen to the value of your Northampton home next year?
What will a no deal Brexit on the horizon, the end of the stamp duty holiday in March, mortgage payment holidays coming to an end, unemployment set to rise after furlough and ongoing on/off coronavirus restrictions do to the Northampton property market and the value of your Northampton home?
In the late spring of 2020, every man and his dog were forecasting impending doom on the British property market. Drops of 10% were considered optimistic as we all held our breath after lockdown was relaxed. Yet, the property market didn’t listen to the forecasters. UK property values today are 2.5% higher than they were a year ago, and more locally,
Northampton house prices are only 0.1% lower than a year ago
(and most of that loss occurred at the back of 2019)
So, what exactly is going to happen to the Northampton property market in 2021?
Well, with the end of furlough and 1.7m people still on the furlough scheme at the start of October, a number of economists are saying that unfortunately many of those furloughed will become unemployed. Unemployment currently stands at 4.5% in Q3 2020 (compared to 3.8% in Q3 2019). The Government’s independent Office for Budget Responsibility believes the unemployment rate will peak at 9.7% in early 2021, and then return to pre-coronavirus levels in 2022. In the past recessions of the early 1980’s, early 1990’s and Credit Crunch of 2009, when unemployment went up, the property market went down.
Yet, in this recession, the link between unemployment and property values may not be so direct.
So why is the link between unemployment and house prices potentially broken? It comes down to interest rates.
The reason Northampton house prices have gone up by 398.77% since the middle of the 1990’s isn’t because the labour market has got so much sturdier, nor that the economy has outperformed every G8 country, or that the UK has had less boom and bust economic cycles than the previous decades. Instead, it’s because of the fundamental and underlying decline in the Bank of England (BoE) interest rates.
High BoE interest rates equal high mortgage payments which holds everything back regarding the property market. In the 1980’s, the average BoE interest rate was just over 11%, making mortgage payments very expensive and keeping property prices dampened. In the 1990’s, the average BoE interest rate was a little over 6%, in the 2000’s just over 4%. However, in the 2010’s, it had been a really low 0.5%. Now with interest rates down to 0.1% because of coronavirus and the BoE threatening negative interest rates, there appears little threat of an eruption in mortgage repayment costs.
With mortgage payments at an all-time low of just under 30% homeowners' disposable income (compared to 48% in 2007), those middle-aged people lucky enough to still be in a job (who are mainly made up of workers whom are spending a lot more time working from home), they could be more inclined to dedicate more of their monthly income to mortgage payments than they did pre-coronavirus for a bigger garden or a move out of the big cities?
So, if unemployment isn’t going to make a huge difference to the Northampton property market, what is?
Most commentators believe a no deal Brexit will have hardly any short-term effect on the property market (apart from certain upmarket parts of central London).
The stamp duty holiday ends at the end of March 2021 and that certainly will reduce the number of Northampton people moving (as many moved their plans forward to beat the deadline) meaning there will be less Northampton people moving in 2021, yet that will curtail the supply of property for sale and hence keep Northampton property prices higher.
Next, the Help to Buy scheme, (started in 2013 and where the Government underwrites part of the mortgage for the first time buyer, meaning they can obtain a 95% mortgage) ends in April next year, yet the Tories indicated at their conference last month they would probably create ‘Help to Buy – Part 2’.
The bottom line is in the early 1980’s and 1990’s recessions, when interest rates were over 15%, obviously home owners couldn’t afford to keep up the mortgage payments when made redundant or on reduced wages, so many handed in their keys to the bank and homes got repossessed, thus exacerbating the issue with falling property values.
However, with interest rates so low, this will not be the case. I envisage that UK property prices will be between 4% to 5% higher by December and Northampton values just behind that at 2% to 3% higher, before levelling out in 2021 (although we might see a modest dip in certain sectors and types of Northampton homes depending on location and condition).
My advice to Northampton buy to let landlords is to wait on the subs bench until April 2021. Something tells me there will be some Northampton landlords who will be looking to exit the rental market after having their fingers burnt after the eviction ban has been lifted.
I also suspect those Northampton first time buyers, eager (and able) to break free the rental-rat-race will want to take up the anticipated ‘Help to Buy – Part 2’ scheme, particularly if the BoE base rate stays low. The other winners in 2021 will be low mortgage/equity rich households upsizing to the countryside or leafy suburbs to test out their boss’s promise of ‘flexible-working’.
Yet the losers will be the 18yo to 29yo renters … most likely to be made redundant and least likely to buy a home.
My advice to the Government for this cohort is to not ignore them once the country is out of this coronavirus situation. It’s all very good keeping the Home Counties Tory voting Baby Boomers happy with green belt policies and other policies to keep their property values higher, yet as the Generation X and Millennials get older and take over as the largest demographic to keep happy (for the polls), the hitherto inconceivable action of the Government levying Capital Gains Tax on your main home may come to fruition.
I mean, we have £400bn to pay back because of coronavirus … it has to be repaid and it has to come from somewhere. Those denied real access to buying their own home in the last 10 years, because of massive house price gains over the last 25 years, could vent their anger via the ballot box — if not at the 2024 General Election, maybe in 2029, when they realise that the futile housing policies of both Labour and Tories of the last 23 years have left them with enduring financial diffidence.
Maybe we should all look to the grocer’s daughter from Lincolnshire who in 1979 set out a bold vision of home ownership for everybody. Whichever political party truly picks up the batten and reframes it for the current 2020’s generation and comes up with the goods, will be the ultimate winner in this game.
Northampton Homebuyers Have Saved £802,750 Thanks to the Stamp Duty Holiday – Yet Many Could Miss Out
Northampton homebuyers and Northampton landlords purchasing residential property have saved £8-2,750 since the Chancellor reduced Stamp Duty on 8th July 2020, yet many more Northampton homebuyers could miss out.
My analysis of properties sold in Northampton from the Land Registry between the introduction of the Stamp Duty holiday on 8th July 2020 and 14th August 2020 (which is the most up to date sales data), reveals that many Northampton homeowners have saved a considerable amount of money in Stamp Duty. According to my research…
since the stamp duty holiday was launched, 128 Northampton homeowners have saved on average £6,272 each.
That’s a total Northampton property value of £41,655,163.
Mind you, it’s not all good news as I estimate 282 Northampton homebuyers risk missing out on the stamp duty savings (worth as much as £15,000 each) due to solicitors/conveyancers and mortgage lenders struggling with demand and failing to hit the 31st March 2021 deadline.
The short-term tax relief, together with the easing of lockdown restrictions, has seen demand for Northampton property soar this summer as Northampton property buyers race to move home.
Chancellor Rishi Sunak introduced a stamp duty holiday in the summer, with the stamp duty holiday due to end on 31st March 2021. Yet, I fear the combined pent-up demand caused by…
…has created a certain amount of constipation and backlog in the Northampton property market.
I know 31st March 2021 seems an age away, however nothing could be further from the truth. The average Northampton property sale was taking 19 weeks between the offer price being agreed and the keys/monies handed over BEFORE THE POST-LOCKDOWN. So, with as many as 40% to 50% more Northampton homeowners in that same sales pipeline of agreeing the offer and the legal and finance to be sorted as we speak, solicitors/conveyancers and mortgage lenders are really struggling with demand for their services, meaning the average time will increase. Hence, I believe as many as…
282 Northampton people could miss out on the
£1,768,560 stamp duty tax savings.
There is time left to sell and legally complete your Northampton property sale before the 31st March stamp duty deadline if you put the property on the market now with a realistic asking price, a decent marketing plan and razor sharp reflexes when it comes to the legal and mortgage work.
Yet with 40% to 50% more home movers in the system, those looking to sell their Northampton home should be very suspicious of agents being too optimistic on their initial asking price (many estate agents get a commission to put a property on the market, meaning they over-egg the pudding on the suggested asking price to flatter you, only to badger you to reduce the asking price weeks later).
Those wasted weeks at an inflated asking price will mean the difference between you securing a buyer and you then buying your next Northampton home with or without the Stamp Duty savings, which are up to £15,000 per home move.
And whilst many Northampton buyers seem ready, willing and able to pay top dollar prices for Northampton properties that match their changed post-lockdown home needs, speaking privately to many Northampton agents, some Northampton homeowners’ price expectations for their Northampton homes are now becoming too optimistic, meaning they will undoubtedly lose out.
We also can’t forget as many as 1 in 5 mortgage surveys are being down valued by the surveyor, meaning unless all parties are willing to negotiate, the sale falls through and the homeowner has to go back to ‘Square One’.
My best piece of advice for those currently sold and in the sales systems with lawyers and mortgage brokers is to speak to your solicitor and mortgage broker every single week and ask if there is anything you need to do to ensure the sale proceeds smoothly and expediently. Also, if you are asked for any information from your solicitor or mortgage broker in between times, drop everything and respond quickly to their request. The odd day here and there will make all the difference.
Northampton’s ‘Generation Rent’ to Become ‘Generation Buy’?
Boris Johnson has attracted both praise and horror in equal measure with a new plan for 95% mortgages to help beleaguered first time buyers to get on the property ladder, but would that expose UK taxpayers to too much risk? In this article I discuss the implications of what that would mean both nationally and locally in Northampton.
With the Northampton property market taking off due to the stamp duty holiday introduced in the summer, Boris Johnson announced at the recent Tory Conference a plan to offer first time buyers long-term low interest rate 95% mortgages (meaning they would only need to raise a 5% deposit). Yet when someone borrows more than 75%, the banks normally take out insurance in case the buyer defaults and the bank lose money if the property gets repossessed.
When the economy is good, the risk is low - so the insurance premiums are also low for the banks – meaning they are happy to lend high percentage loans. Yet, nobody could deny we are entering a period of uncertainty in the coming 12/18 months, meaning the insurance premiums for the banks have gone through the roof.
Mortgage companies have avoided riskier high percentage first time buyer mortgages since the start of the Coronavirus predicament. At the end of February 2020, there were just under 400 95% loan-to-value mortgage products accessible for first time buyers, yet today that figure stands at just 26.
Another reason for removing the number of 95% mortgages was that the demand for lower percentage loans exploded after lockdown was lifted, and with many mortgage staff still working from home, the banks and building societies focused their attention on getting those (less risky) mortgages sorted first. Therefore, they removed the higher percentage loans from their books, so they weren’t swamped with too much work ... so, one must ask, should the Government take on the risk from mortgage providers in the form of a guarantee from the Government — sparking concern among economists the Government is already burdened with debt – does it need anymore?
Yet taxpayers have been funding a similar scheme for years. The Help to Buy scheme, which allows first time buyers to buy a home with a 5% deposit (and the Government guaranteeing between 20% to 40% of the loan) has been in operation since 2013. Taxpayers are already guaranteeing £16.049bn of loans for 224,133 first time buyers, and when we look closer to home locally, since 2013 …
1,256 first time buyers in Northampton have used the Help to Buy scheme to help buy their home, relying on the Government to guarantee them on average £46,492
That means in Northampton alone, £58,393,952 is at risk if those Northampton homeowners’ default on those pre-existing Help to Buy Loans … yet the default rate is quite low.
So, should the Prime Minister be playing with the housing market? Ought he instead allow open market forces to be applied to the property market, allowing it to find its own normal and leave the mortgage providers to decide on mortgages based on risk, because all the Prime Minister will potentially achieve is a synthetic rise in property values?
Some in fact have argued it would be better to spend that
public money on delivering affordable rental properties?
However, isn’t it better in the long run for the country as a whole that British people own their home rather than rent because the Government will have rent to pay for those tenants when they retire if they are on the basic (low) state pension?
Personally, I don’t disagree with the initiative, yet all I am querying is, what are the Northampton first time buyers going to be able to buy? The Northampton property market is already quite drawn-out, as ultra-low interest rates have augmented the gap between the first home and the second home, the second home to the third and so on and so forth, so is this initiative fashioning a massive demand that will inflate property prices up the Northampton property ladder still further and ultimately lead to even more frustration down the line?
However, could this be the very thing that saves
the Northampton property market in 2021?
Firstly, with the stamp duty holiday due to finish by the end of March, there are suspicions the property market will stall. And secondly, the very popular Help to Buy scheme mentioned above also finishes at the end of March 2021. This boost instead of fuelling house price inflation could stabilise the property market.
In fact, the Government are hoping the property market will help power us out of recession. The early signs are good as the Northampton housing market has exploded as a result of the stamp duty holiday introduced in the summer. It certainly needs to as the country’s GDP only grew by 2.1% in August, down from 6.4% in July, 9.1% in June and 2.7% in May.
As a country, our GDP is still 9.2% below the levels seen pre-Covid. With the property market doing well, the country remains on course to leave recession in Q3, yet with the impending triple peril of rising unemployment (after furlough), further lockdown restrictions and a messy end to the Brexit transition period does this mean we are potentially in for an interesting ride?
Only time will tell if ‘Generation Buy’ will help save the property market, the economy and ultimately Boris? In the meantime, I think it will be a safe bet that people still need homes to live in … and irrespective of what happens to the property market, with that simple fact, the winners in all of this will be Northampton buy to let landlords.
Tell me your thoughts on this …
Northampton 2nd & 3rd Time Buyers Finding it Tougher (and Slower) to Move up the Northampton Property Ladder
Post lockdown, the need for Northampton families who want bigger homes has meant Northampton homebuyers must now pay considerably more to trade up to that larger home…
One thing that has come out of lockdown has been the inexorable movement of Northampton households wanting to upsize to a larger home. Often considered to be first-time buyer properties, the smaller 1st step on the property ladder one and two-bedroom properties are selling quite well, yet demand for those properties on the 2nd and 3rd step rungs on the Northampton property ladder (i.e. the three or four-bedroom homes) has been even greater.
This demand has been driven by Northampton buyers looking for more living space, especially those looking for an area or room to work from home (be that a bedroom, reception room or even an outbuilding converted into a study).
The average asking price of a 3 bed Northampton home is £242,400, whilst for a 4 bed Northampton home it stands at £373,700
As you can see, quite a jump for an extra bedroom! The heightened contest for 2nd and 3rd step Northampton homes for that extra bedroom has pushed demand to a record in October for those looking to take the next step up the ladder. Historically, as a family and its household income grow, the need for more space has permanently been the No.1 reason for moving home, yet now there is a new need for additional space to facilitate people working from home. This means not only do we have growing families wanting larger Northampton homes, there are also the people needing the same larger homes for space for a home office. Therefore, looking at the current stats, as you can see, the Northampton property market is doing quite well…
59.1% of all 3 bed and 56.0% of all 4 bed homes
in Northampton are sold (subject to contract)
Roll the clock back to pre-Covid and ask any Northampton homeowner who had enough bedrooms for their children if they wanted an additional bedroom, and most homeowners would say that was very much a ‘nice to have’, yet not a ‘must have’. With us all being cooped-up over the spring this year, demand for additional rooms is at a high, with those presently looking for their next larger Northampton home are probably going to find that only offers close to (if not sometimes over) the asking price will be accepted.
Even though no properties sold during lockdown, putting the Northampton (and UK) property market on hold for many months, many more people buying their next Northampton home will have more than made up for it since lockdown was lifted as the portals have stated if the UK property market remains at its existing trajectory, then the number of properties sold YTD by the end of October 2020 will be greater than YTD October 2019.
Yet all these properties sold are causing another issue. Just because a property becomes Sold Subject to Contract (SSTC) doesn’t mean the property is actually “sold”. Before going into Covid, it was taking approximately 19 weeks between agreeing a sale price (and instructing lawyers) to completing the sale. Yet, because we are nationally running at 140% to 150% of properties SSTC (than where we normally are at this time of year), many of my estate agents colleagues are having to manage expectations with buyers and sellers, and tell them that the date they are going to move will take a little longer.
The elephant in the room is that the temporary stamp duty holiday ends on the 31st March 2021
It sounds an age away, yet trust me, nothing could be further from the truth. Adding an extra month for the additional homes in the bottleneck means even if the sale of your Northampton home was agreed today, that would take us to the 3rd week in March ... that’s cutting it very close for the stamp duty holiday.
It is so fundamental for buyers and sellers of Northampton homes to work meticulously with their estate agent, solicitor and mortgage lender. For example, there are less staff in the local authorities to do the local searches, bank staff are working from home meaning mortgages are taking much longer to get approved, and conveyancer/solicitors are snowed under with work. Therefore, if you get a document that needs filling in, are asked to provide documents, pay disbursements or questions need answering, do it immediately and without delay. A day here and day there will snowball and could mean you miss the stamp Duty holiday … and that could cost you thousands and thousands of pounds.
The bottom line is that we haven’t seen this sort of pressure on the UK property market since 1987, when dual-MIRAS was abolished. Now, as we are slowly starting to come out of Covid, with many legal and banking staff working remotely or still on furlough, the perfect storm has occurred with unprecedented demand from buyers looking to move post lockdown. The best advice I can give is, as soon as you put your property onto the market, find a solicitor that has the capacity to work with you, then instruct that solicitor to start work immediately to prepare the paperwork, so once you have a buyer, things can move more smoothly and quickly. The last thing you want is to lose out on saving thousands of pounds by missing the stamp duty holiday by a whisker.
Why are Some Banks Reining in Over-Enthusiastic Northampton Homebuyers and Buy-to-Let Investors?
The Northampton property market is an enigma and chock-full of contradictions.
Notwithstanding an economic recession and forecasts of property values dropping, nobody seems to have informed the Northampton homeowners selling their homes and those Northampton people looking to buy them. As I have discussed in many recent articles on the locality, the Northampton property market is booming and property values in some sections of the market are rising, yet amidst enthusiastic reports of gazumping, there are disgruntled and malcontent grumbles about mortgage company surveyors down valuing property on survey.
However, before we talk about the banks and surveyors, let’s look at what is happening in the Northampton property market now.
Land Registry figures published last week showed unyielding evidence for what everyone in the property industry had been saying since the market reopened after a seven-week lockdown on May 13: property prices are rising.
The average value of a Northampton home rose by 0.7%
in the year to June to £263,100
Many expect the statistics to show more rises following the Stamp Duty Holiday announced in July, which unbridled a burst of buying activity in the Northampton property market. In many (not all) sectors some properties have been going for over the asking price whilst some have been going to sealed bids.
Some newspapers have even suggested a small minority of homeowners are ‘backdoor-gazumping’, which is genteelly being referred to by estate agents as ‘retuning the asking price’ - as in, the homeowner removing the property from the market, ‘retuning the asking price’ in an upward direction, then placing it back onto the market.
Conceivably enthused by these stories, some house sellers and estate agents might be getting a little carried away and placing overambitious asking prices on homes they are selling. Customarily a property with too high an asking price wouldn’t sell - yet some over-enthusiastic Northampton buyers are paying over the odds for certain types of properties.
So, let’s look at what is happening to the Northampton property market (Northampton plus 3 miles) by house type and the number of bedrooms…
As you can see, the best performing type of property in Northampton is the semi-detached house and the best-selling properties when it comes to bedrooms are 3 beds.
These are quite impressive figures for the Northampton property market, yet some of the banks are having none of it
They are looking apprehensively into 2021 when furlough/the new job support scheme ends, meaning it’s quite tough for all buyers borrowing high percentage mortgages (i.e. more than 80% to 85% of the value of the property in a mortgage).
It is even tougher for self-employed buyers (whose income is less than assured) to get those high percentage mortgages - and finally, the banks are most certainly concerned with high percentage mortgage buyers who pay over-inflated prices for property using the bank’s money… hence the down valuing (Definition of Down valuing : the buyer and seller agree a sale price, then the mortgage is applied for with the buyer’s bank and the bank’s surveyor states the purchase price the buyer is paying is too much).
One small note to Northampton landlords - I am also hearing that some overzealous Northampton buy to let landlords who are over-egging the potential rental figures on their buy-to-let purchase in order to obtain the mortgage, are also being reined in by the banks.
Now this is not a huge issue (e.Surv – a nationwide surveying firm only reported a 4% increase in surveyors having to down value property in Q2 2020 compared to Q1), yet should you be lucky enough to have multiple offers on your home, ask the agent what the overall buying position of the buyers are. You need to specifically ask what percentage loan the buyer is taking on and the position of the buyer in the chain (they have to find this out anyway by law and you have a right to know that information as the property seller if you ask).
The bottom line is the highest bidder might not be the best buyer for you. It’s true, average property prices are rising nationally, yet this does not mean you should pay over the odds for your next Northampton property.
If you would like a chat about any aspect of the Northampton property market - please do send me a message or pick up the phone.
3 Reasons That Will Make You Want to Stop Being a
Northampton Buy-to-Let Landlord
… and the six reasons that will make you want to become one
The buy-to-let market in Northampton is about to enter a challenging 12 to 24 months. Yet by looking back at the last recession and what is happening now, there are vital lessons all Northampton landlords can learn to protect themselves, and in fact create opportunities for themselves both in the short term and ultimately the longer term. For the purposes of this article, I would like to split these and look at the challenges and then the opportunities.
So, let’s consider the challenges ahead for Northampton landlords …
Overall, the impending rise in unemployment stands to encumber tenants’ ability to pay their rent, the rents being achieved and the possible Capital Gains Tax changes might mean an increase in tax paid by Northampton landlords when they come to sell their Northampton buy-to-let properties.
Lets look at these three points in greater detail. Firstly looking at your Northampton tenants ability to pay the rent; the Furlough Scheme certainly did help soften the blow, helping out 8.9 million people in May (out of 30.5 million who were eligible for it) and at the last count in early August, this thankfully had reduced to 5.3 million people (meaning 15.86% of workers are still on furlough). However, it cannot be denied the economic fallout from Coronavirus has already placed some tenants under economic strain. As the Furlough Scheme finishes at the end of October, commentators are suggesting the number of tenants either incapable of paying their rent, or requesting a reduction in their rent, is predicted to increase as we go into autumn and early winter.
The ultimate sanction against non-payment of rent is legal proceedings although guidance from the Government has recommended that landlords and tenants should work together and deplete all possible options before starting eviction proceedings. Yet many Northampton landlords are feeling the pressure as many mortgage payment holidays will be coming to a close at the end of September. Some Northampton landlords can indisputably see that their tenants are finding it tough and they are willing to work with them, but they can only make allowances go so far. Landlords aren’t running a charity and I would stress to any tenant that finds themselves being made unemployed in the months to come to apply for Universal Credit as soon as possible, which should help with their rental payments. With regard to the eviction process, the Government have changed the rules a number of times in the last few months, so if you want an update, don’t hesitate to contact me, whether you are client or not – I am just happy to help.
Secondly, it’s interesting that in central London, there has been a glut of Airbnb properties coming onto the market because of lack of tourists to rent them on a short-term let. A greater supply of rental properties has meant a downward pressure on rents in London of 2.1%. I don’t think this is so much of an issue in Northampton as
Northampton rents are 2.39% higher year on year
Thirdly, there is talk that the Chancellor, Rishi Sunak, is looking at changing the Capital Gains Taxation rules. As property is the biggest asset that most people own, this is also reason for concern for Northampton buy-to-let landlords. Currently, Capital Gains Tax on sales of buy-to-let property is levied at 18% for basic income tax rate payers and 28% for higher rate income taxpayers. There is talk the capital gains made on the landlord selling their buy-to-let property could be taxed at the landlord’s income tax rate.
Yet before you all start selling your Northampton portfolios before November’s budget, any changes in Capital Gains Tax would be immediate. That means to ensure you didn’t come foul of the potential rise in the tax, you would have to have to sell your Northampton portfolio at a ‘fire sale price’ in days and have a solicitor that could do the conveyancing in 3 weeks (whilst it is taking 19 weeks on average for buyers to sort their legal work out) and the buyer be a cash buyer because banks are taking months, not weeks to sort finance. This is just something we are going to have to take on the chin!
Let us now consider the opportunities ahead for you Northampton
As the country officially entered its first recession since 2009, uncertainty in any markets (be it property or stocks and shares etc.) causes investors to vacillate over whether or not to take the jump. Nevertheless, there are numerous indicators that appear to show this is, indeed, a good time either to become a buy-to-let Northampton landlord or expand one’s property empire and buy more property ... let me explain.
Firstly, assets (such as gold and stocks and shares) are great, yet if they aren’t producing income and cash – that doesn’t pay for your day-to-day living. Gold doesn’t create any income and many FTSE companies won’t be paying dividends for a while. Government Bonds are currently earning their investors 0.2% (no – that isn’t a typo) and the best savings accounts are achieving 1.1% with a 120-day notice period, so where are you going to invest your hard-earned money?
The average Northampton buy-to-let property
will earn a monthly return of 4.17%
Of course, deciding on the right Northampton property is crucial to get a good rental income and return. I have seen so many Northampton first-time landlords buy with their heart and not their head. Buying your own home is more heart than head but buy-to-let is a completely different kettle of fish. There is the inverse relationship between income (rent) and capital growth (how much it will go up in value in the future) i.e. as one goes up, the other tends to go down – so getting the balance for your needs is vital. Again, I can advise on that for you.
Secondly, with the stamp duty holiday and the pent up demand for people wanting to move home in Northampton (discussed many times recently in this blog), the Northampton property market is certainly very buoyant at the moment, yet even the most optimistic agents say it cannot last. Whether the market goes pop or has a slow and steady puncture, the market will cool in 2021. The recession will mean some people are less able to afford a mortgage. This means that if Northampton property values do ease off in 2021, you may be able to get a great buy-to-let deal if you are planning on becoming a Northampton landlord or expand your property empire as an existing landlord.
Also, if the property market does find property prices realign to a new normal in 2021/2, house sellers may find it difficult to get a good price on their Northampton home during a recession, meaning many house sellers may be more agreeable to sell their property at a lower price.
Third, if people aren’t buying, they still need a roof over their head and the council aren’t building any council houses, meaning the private sector will need to take up the slack.
Rightmove reported tenant demand grew by a third in
May 2020 when compared to the same month in 2019
Therefore, if you are still unsure about becoming a Northampton landlord, knowing that more Northampton people want to rent should help you feel more comfortable as the risk of ‘running out’ of renters interested in your Northampton property is minimal. Yet again, please don’t go buying any old Northampton property, as it’s fundamental that you make a good investment from the start in order to see a good return on your investment.
If Northampton property values do fall in 2021 (as in 2009),
tenant demand for Northampton property will only go up
Fourth, the Government reduced Stamp Duty with the sole aim to benefit the property market. The purchase needs to complete by the end of March 2021, which means you will need to have bought the property by November at the latest (as obtaining finance and legal work is taking at least 19 weeks). A word to the wise though, that whilst the saving in Stamp Duty delivers some up-front saving for those buying a buy a let property, don’t get carried away and use that saving in the purchase price you pay. Certain sectors of the Northampton property market are seeing some very inflated prices, meaning if you go into battle for a show home quality semi-detached house within a stone’s throw of the best school, you will be fighting against buyers who want it for themselves and are prepared to pay top dollar for it, meaning some landlords could end up paying more for a property. My advice, if you want to save on the Stamp Duty, there are bargains to be had – you just have to know what you are looking for (again, as mentioned in point 1 – I am here to help on that whether you are a client of mine or not). The other option would be ‘just hold back’ until after 31 March 2021, when Northampton property prices could ease.
Fifth, reports that the mortgage lenders are imposing stricter conditions are true, yet even during Covid, many lenders are seeing buy-to-let landlords as a safer option to lend their money to. In June alone, the number of buy-to-let mortgage products rose by 19.2% (to just over 1,700) meaning if you have a decent deposit of 30% upwards, you are likely to find something that fits your needs (at the time of writing this article, the Birmingham Midshires had a buy-to-let 5-year fixed rate mortgage at 1.94% and Santander at 2.04% ... this is cheap money in anyone’s language). Mortgage rates are ever becoming more economical, which is a great motivation for anyone wanting to get a foot on the Northampton buy-to-let property ladder.
Finally, words cannot portray the feeling of being able to see and touch one’s investment like the sensation of bricks and mortar. Buy-to-let investment has to be seen as a long-term investment yet, for many, that is a source of financial security. Of course property values might go south next year (but they might not!) whereas there may be intervals where it’s more problematic to sell because property values will be too low, as is normally the situation throughout a recession, there will also be times where Northampton landlords will make a nice profit when selling their buy-to-let homes. Like all things in life – it’s all about the timing.
Northampton property values are 185% higher than 20 years ago
If you’re looking to invest but are not interested in stocks and shares (and you understand that your money may be tied up for a while) then the Northampton buy-to-let market could be for you.
To conclude, buying the right Northampton property at the right price to start with, presenting the property in the best way to get the best tenant, fully checking out and referencing the tenant to ensure they have a good track record of being a good tenant that doesn’t trash the property and has always paid the rent on time in the past and then finally, managing the property to ensure your property complies with the 200+ legislations and regulations of rental property, so you can sleep well at night … all to ensure the property is returned at the end of the tenancy to you in good order is what nirvana looks like.
Of course, buy-to-let does come with some risks and challenges, but it’s all about mitigating those risks. Also, there is no denying that buy-to-let also comes with a lot of opportunities as well. If you are a landlord with another agent or even a Northampton landlord that manages the property themselves, feel free to drop me a message, email or pick up the phone and let’s chat about your personal goals when it comes to buy-to-let … because what have you got to lose? Surely 15/20 minutes of your time to get great insight and inside track is worth it?
Remember, the choice is yours!
The Northampton Property Market Post-Lockdown - The First 100 Days
With around 1 in 5 Northampton house sellers actually selling their home in the last month, Northampton sellers and buyers will need to continue to be pragmatic if the surprisingly strong current levels of activity in the Northampton property market are to be sustained.
To start, we had the once in a lifetime event of the credit crunch in 2008, we then had another once in a lifetime event with the Brexit vote in 2016 and now the mother of all ‘once in a lifetime’ events, Coronavirus in 2020 – three once in a lifetime events in the space of 3 Olympic Games!
The doom-mongers forecast that the British property market would drop like a lead balloon on the scale of the 1989 housing crash (where property values dropped by 30.87% in a couple of years) but would be nothing compared to the tsunami that was Covid. Yet in the first 100 days of the property market coming out of lockdown, behavioural and economic changes mean that many Northampton homebuyers are now even more dedicated to moving home and the Northampton property market is doing quite well.
Going into lockdown, the effect on activity in the Northampton property market during those two months was expectable and predictable as it was placed in suspended animation during April and May. When the Northampton property market re-opened in mid-May, nobody predicted what happened next. Of course, many of us in the property industry estimated some release of pent-up demand from the Boris Bounce, yet nobody anticipated such a ricochet in activity in the Northampton property market.
This is particularly interesting when one considers GDP dropped by 20.4% in Q2 2020 (fascinating when compared to notable historic times when it dropped by 13.8% in WW2 and 16.7% in WW1), yet amidst the largest contraction in the UK economy ever in a single quarter, what wasn’t expected was an increase of potential property buyers and property sellers wanting to move post lockdown.
Some have cited this boost to the property market on a number of factors. Firstly, we have had the Stamp Duty Holiday, others have pointed at the never seen before 0.1% Bank of England base rates making mortgages cheap, then we had the furlough scheme which protected so many jobs and finally, the pent-up demand from the Boris Bounce.
Yet, when one actually talks with Northampton buyers and sellers, whilst all of them cite one or two of the above reasons, all of them mention and talk about how the lockdown has made them re-evaluate and reconsider how they want to live, their work-life balance and where they want to live. This is also reflected with tenants changing their requirements when looking for a property to rent (so Northampton landlords - be aware of this).
Demand for apartments in the centre of Northampton has eased off, whilst demand for property with a good-sized garden or other outside space has increased. One question we get asked all the time is also the broadband speeds, although they are quite decent in Northampton (the average broadband in our local Council area being 61.4 Mbps download and 10.2 Mbps upload).
So, with record numbers of Northampton properties coming on to the market - is it boom time for Northampton homeowners?
Of the 1,049 properties that have come onto the market in Northampton over the last month, only 188 of them have agreed a sale (a percentage of 17.9%)
That means around 4 in 5 Northampton people that have placed their property onto the market have not found a buyer yet.
Yes, the Northampton property market is good, yet the number of people who have placed their property on the market has also gone up. Northampton estate agents have never been so busy putting property on the market and I feel sorry for the chap who is putting up all the for-sale boards – his wife hasn’t seen him in daylight for weeks!
But that does mean you are in competition with so many other properties on the market (the number of properties coming on to the market typically at this time of the year is about a third to half less). The Stamp Duty boost ends in March 2021, so that means you need to have found a buyer by November at the very latest. By overegging your asking price, to test the market, might mean you will lose out on this hiatus and could end up missing the boat!
The prices being achieved for the Northampton properties that have been selling have been fair and realistic and have stood up much better than many were originally predicting.
Yet as the country looks forward, given the ambiguous nature of the outlook for the British economy and the possibility that Covid-19 may be with us for a little while yet, I must implore Northampton property sellers to be realistic with their asking price so a greater number of you who want to make the move, are able to do so.
Northampton Millennials Moving Back in with Mum & Dad?
Roll the clock back 20 years and any self-respecting late 20/early 30 something would never say on their first date that they lived with their mum and dad. It was seen as a sign of immaturity being tied to your mother’s apron strings as a failure to leave the family home. Yet over these last two decades, the age of leaving home has been increasing steadily from 20 years and 11 months in the late 1990’s to 22 years and 7 months today.
However, as with all the stats, the devil is in the detail. Although the age of leaving home has only risen by 8% between 1997 and today, those that didn’t leave home in their early 20’s tended to stay much, much longer.
In 1997, 11.26% of 25yo to 34yo still lived at home with their parents,
yet last year that had risen to 15.74%, an increase of 391,000
‘stay at home’ Millennials
However, before we deride these Millennials for still being tied to their mother’s apron strings, I would say those very same Millennials (the mid 20’s to 30-year olds) have been pragmatic, being attracted to sacrificing independence in order to achieve their long-term life goals as they have seen rents rise and an inability to save for the mortgage deposit. All of this has seen the first-time buyer levels in this millennial age range rise for the last three years … so good news for everyone!
However, is all that about to change?
Just as mum and dads in Northampton had thought their late 20 something/early 30 something offspring had flown the nest, Covid-19 has blown some Northampton ‘chickadees’ back into the nest. Back in March, the lockdown saw many Millennials flee the big UK cities, with their constrained and poky shared HMO’s and flat shares, swapping their city centre private rented home for their parents’ Northampton home.
Yet with lockdown lessening, it isn’t just remote workers who are unenthusiastic and disinclined to return to the big cities (fearful of a second lockdown) — many of these Coronavirus blow-ins are deciding to stay put too! A recent YouGov poll asked Millennials of private rented homes what their plans were and 1 in 6 tenants planned to hand their notice in on their rented home and fly back to the nest of mum and dad. The advantages are quite plain, especially as it could enable them to save for a deposit to buy their future home.
There are 89,984 households in Northampton, made up of 27,432
single person households and 54,936 family households
(the remainder being made up of shared houses etc.)
Yet how many of those Northampton family households had non-dependent children before Covid-19?
7,611 Northampton households have children
that haven’t flown the nest
That’s 13.85% of Northampton families whose kids are still to leave home … and it’s only going to get worse!
So, what does this mean for Northampton homeowners and Northampton landlords?
It will mean that Northampton parents and their children will get to know each other better, build stronger relationships and it will enable their children, if they are wise, to save for their deposit for their first home purchase - who knows maybe in Northampton, as working from home could become the norm.
Also, with remote working, many tenants are looking for properties with bigger gardens which could translate into greater demand for property with bigger gardens? It will also change the property needs of those Northampton parents and potentially could mean instead of those parents moving down market, they could end up staying longer or moving up market?
Now of course these polls could be a load of hot air? What I do know is that this thing has not played out yet and only time will tell if this will make a concrete change to the way people live, rent and buy property.
These are interesting times and thank you for reading this. Do let me know your thoughts on this matter.
The 9,085 ‘Trapped Landlords’ of Northampton
Going into lockdown in March, the Government proclaimed a ban on tenant evictions, pledging that no tenant in a private rented home, who had lost their wages due to Covid-19 would be kicked out of their private rented home until the late summer. Fast forward to August and the press were being briefed as late as Wednesday 19th August that this freeze in evictions in England and Wales would cease on the 23rd August. That was until just after 4pm Friday 21st August when Mr Jenrick, the Housing Minister, announced that the eviction ban would be extended for a further four weeks and also buy to let landlords must now give their tenants six months notice to gain possession.
Cue crocodile tears for all the 9,085 Northampton landlords
Not so ‘snappy’ with piping your eye there. I know many Northampton landlords became landlords between 2000 and 2009 because they preferred bricks and mortar to investing in the stock market or gilts/bonds market. All they were looking for was a small pension income to top up their meagre state pension. Not all Northampton landlords are akin to the 21st Century Rising Damp version of Leonard Rossiter with his ‘Rigsby-esqe’ or even ‘Rach-manism’ wicked landlord ways. Official estimates suggest there are 1.8m to 2.1m landlords in the UK, the vast majority doing the right thing by their tenants, many of whom have helped their Northampton tenants in financial trouble during Covid-19 by acquiescing to short-term rent reductions or rent-payment holidays.
Also, many Northampton landlords have mortgages (in fact, if we added all the UK buy to let landlord’s mortgages, they would add up to £216.65 billion). The Government and the Bank of England have applied political influence on the mortgage companies to be a little more flexible and sympathetic on landlord’s mortgage interest payments, yet the mortgage interest is still adding up. The issue is, some tenants are in arrears with their rent, meaning landlords aren’t receiving their rent, which means many buy to let mortgages aren’t being paid either.
So, how many tenants are in arrears? The National Residential Landlords Association stated that just 3% of landlords recently surveyed reported tenants are in arrears. This was backed up recently when Goodlord stated …
3.72% of tenancies in the UK are in arrears
These are only slightly above the pre-Covid arrears levels, yet still a strain for the landlords involved. Also, the two-month notice period of the section 21 Notice has been extended to six months, meaning it will be March before any tenants are made to leave, even if the notice was issued now.
So, does this leave Northampton landlords trapped?
With regard to the arrears, only 1 in 17 landlords rent their property through a limited company, meaning the rest (i.e. the vast majority) rent their property as a person, thus giving themselves unlimited personal liability should their rental portfolio fail (i.e. the mortgage company could make a claim on the landlords own assets, including their main residence, if the property was repossessed and the shortfall wasn’t made up). Also, if the building society’s and Banks turn against the Government advice and are too lenient with landlords with buy to let mortgages, there could be situations where the rental properties are repossessed, meaning the tenant will be made homeless.
I am particularly concerned about the fate of the
2,552 self-managing Northampton landlords (i.e. they don’t use an agent)
They should seriously consider taking out rent guarantee insurance to protect themselves against any potential defaulting tenants (so many don’t). Reasonably priced rent guarantee insurance products, even on existing tenancies are still available to landlords via agents, even in these Covid-19 times (whether you are a client of mine or not do not hesitate to pick up the phone and have a chat or send me an email). Whilst the policies aren’t inexpensive – they do give you peace of mind with the rental payments.
One thing that this does also remind me of is the 2008 Credit Crunch. There were an awful lot of Northampton homeowners who were unable to sell their home in 2008/9, so they converted their Northampton property into a buy to let investment. There are going to be an awful lot of Northampton landlords who will also want to sell in the next six to nine months, yet are unable to do so until the middle of next year without having to take a hit on the value of their home. For those Northampton landlords that can relate to that, maybe we should chat to consider your options so you can mitigate any losses?
It seems Northampton landlords have been used to saving the Government from a PR disaster of homeless tenants on the streets at Christmas, the least we should do in the country is stop disparaging landlords and lift them up from their pariah status.
Northampton landlords are housing 38,901 Northampton
people in private rented accommodation…
… and so it is my opinion that the contributions made by these Northampton landlords should be recognised. My fear is always of a danger of a widening schism between the landlords and tenants. Truth be told, both need each other, and I hope the Government extend help to landlords as they have with tenants, otherwise the Government won’t have any homes to house the British people if all the landlords decide to sell up. It is especially important that the supply of private properties doesn’t drop in Northampton going forward when you consider…
Northampton needs an additional 6,823 private rental homes by 2029
In the meantime, the Government have bigger fish to fry sorting out the economy as a whole, so if you are a self-managing landlord or even a landlord with another agent in Northampton, feel free to pick up the phone or make contact with me and we can discuss your options without any obligation. There is no need to feel trapped, there are options for you and it is better to consider them now - set the foundations and motions going in the right direction promptly before it becomes a bigger issue in the future.
1,554 Northampton Properties Sold in Stamp Duty Holiday Bonanza
On the 8th of July 2020, the Chancellor announced the first £500,000 of any property bought was exempt from stamp duty until 31st March 2021. This also included buy to let landlords (although they would still need to pay the additional 3% stamp duty level for second properties). Talking to many of you Northampton homeowners, I know lots of you are bringing forward your home moving plans to take advantage of this tax cut. Also, many Northampton portfolio landlords are looking to save paying the tax by bringing their portfolio purchases forward. Yet how do you ensure you sell and buy your Northampton property whilst the tax cut applies (a saving of up to £15,000 of stamp duty on your next Northampton home?).
The biggest issue whenever you are selling your Northampton property is the properties that you are in competition with. Plenty of Northampton homeowners have jumped onto the stamp duty holiday bandwagon since the announcement and there are 13% more properties for sale in Northampton than there were during lockdown. The number of properties for sale in Northampton can split down into type…
So, now you know what you are up against, what do you need to know?
The most important factor is the time issue. It currently takes on average 17 to 19 weeks between a sale price being agreed and the keys being handed over, meaning you need to have found a buyer before the end of November or early December to enable you to complete the sale by the 31st March 2021. That means you really need to have placed your property on the market by the end of September and early/mid-October at the very latest to take advantage of the stamp duty Holiday. Don’t get me wrong though, you could put your Northampton property on the market after that date, yet the price you will be able to achieve for your property could be affected.
There are 3,072 properties on the market in Northampton,
of which 1,554 have sales agreed on them
Talking of price, or more specifically the asking price. There is a window of opportunity for Northampton homeowners to take advantage of this stamp duty tax cut, yet don’t let local estate agents curry favour with you by tempting you with a high initial asking price to win the right to put their for sale board outside your Northampton home.
A Which report stated in 2017 that many estate agents routinely over inflated the asking prices of the properties they brought to market. One might ask why this is an issue for Northampton property sellers, as surely, they can just reduce their asking price at a later date? The excellent report proved that those estate agents who on the face of it appear to be doing you some kindness by endeavouring to get more for your home with a suggested higher asking price, the property often ended up selling for much less than similar properties that were realistically priced properties from day one and also, they ultimately took longer to sell!
This Which report compared the original asking price with final selling prices for 370,000 properties to ascertain how many estate agents had reduced the initial asking price of properties in order to sell them. Which found that 70,300 (19%) of all 370,000 properties sold had to be reduced by at least 5% in order to get the property sold, whilst the other 81% (299,700) had no or very minimal reductions to get them sold.
Of the 299,700 sold properties that weren’t reduced or reduced by less than 5%, the average initial asking price was £261,000, yet they eventually sold for an average sale price of £260,000. For those 70,300 homes whose asking prices were reduced by over 5%, whilst the average listing price was £266,000, their eventual sale price was only £241,000, a loss of £20,000 each. Even worse, those properties with the heavy price reductions (5% or more) took an average of nine weeks and one day longer to sell (when compared to the other properties with no or minimal reductions).
What that means is by over inflating your initial asking price of your Northampton home, it will cost those Northampton homeowners an extra nine weeks to find a buyer and they will lose out on the final sale price by some considerable margin (meaning you will also probably lose out on the stamp duty holiday).
Assuming your asking is price is realistic, you aren’t out of the woods yet. Other things that will help you get the best price for your Northampton home in the best possible time (and thus save you money with the stamp duty holiday) are …
The final piece of advice I can give you is if you are planning to sell your Northampton home, make sure your Northampton estate agent can show you proof of similar Northampton properties and what they actually sold for to back up their suggested asking price. If the asking price isn’t realistic, the chances are you end up losing many thousands of pounds and wasting everyone’s time. If you would like to chat about selling your Northampton home, please do not hesitate to pick up the telephone.
Northampton OAP Homeowners to Face £15,349 Coronavirus Tax Bill?
The Government is on track to borrow £400bn because of Coronavirus and that needs to be paid back at some stage. Last year alone, before Coronavirus, the Government brought in £824 billion in taxes whilst they spent £887 billion, meaning they had to borrow £63 billion. In fact, the last time taxes were higher than spending in the UK was 1998, meaning since then the country has been living beyond its means.
Interestingly, whilst these are certainly eye watering numbers (£400bn is a lot of money in anyone’s book) most people aren’t too concerned in the short term. Because interest rates are so low, the Government are able to borrow this money at 0.39 percent per annum over a 10-year period on the Gilt Markets. There are even 3-year Government gilts at a negative interest rate. This is because the UK has been considered (and still is considered to be) a monetary sanctuary/safe haven for the last 20 years because of the country’s robust credit worthiness. Cheap money – yet it still needs paying back in the years to come and that can only be funded by taxpayers.
Ultimately, the Government will have to try to balance the books and that means increasing taxation. I know many will say there is waste in the NHS and MoD procurement, but that has already been squeezed quite hard during the Credit Crunch crisis and years of austerity. Some have suggested stopping the triple lock on pensions, which costs the Exchequer £6bn a year more than if pensions had risen at pre triple lock rates, so that isn’t going to make much of a dent in the debt. Some have suggested we could enter into a second wave of austerity, like we saw from 2010, yet neither the voters nor the wage frozen public sector would accept that. That leaves tax rises as the only option for leaders who claim to take a responsible long-term view of the economy.
The Government could raise tax on spending with VAT increases, but they did that in 2011 when it rose to 20% (from 17.5%). Also, increases in VAT affect the poor more than the rich. Then they could raise it from earnings (Corporation Tax, Income Tax and National Insurance) yet it’s been proved raising these ‘earning taxes’ ends up being counter-productive to the economy, resulting in tax receipts going down (even though the tax rate went up). Both are unsatisfactory, not least because big rises end up being unfair to someone.
So, some ‘think tank’ groups have suggested that we look to unearned wealth and the equity people, especially the older generation are sitting on in their homes, to pay for Coronavirus. Whilst I am in no way promoting and advocating that idea, I thought it was a fascinating suggestion and wanted to know what that would mean for Northampton homeowners if such a fanciful idea took hold?
OAPs in Britain sit on £1.425 trillion in
housing equity in their own homes
The average length of time an OAP homeowner has been in their property, according to official figures, is 24.7 years, meaning on average, 75.8% of that equity is profit. So, if say a capital gains tax of 10% was placed on any profit, it would raise £107.84bn over the next 20 to 25 years. So, what would that mean to Northampton OAP homeowners?
Northampton OAP homeowners own £4.504bn
worth of property
Taking into account the average length of time those homeowners have been in their Northampton home, that is an ‘unearned’ profit of £3.407bn, or £1.803bn after inflation. Some ‘think tanks’ have said that should be taxed as some form of capital gains tax.
To give you an idea, if every OAP homeowner in Northampton had to pay a 10% capital gains tax when they (or their descendants) sold their Northampton home, that would cost them £15,349 each (or a total of £340.73m).
So, is this the answer to pay for Coronavirus? There needs to be tax reforms to protect the public finances yet is it fair to tax previous capital gains? Many people say no. Let’s not forget people buy their homes out of taxed income, then pay Stamp Duty, VAT on any improvements and inheritance tax if the property value is more than £675,000, so is it fair the Government want another slice of pie?
The older generation who bought these homes saw mortgage rates of 19% in the late 1970’s and 16%+ in the early 1990’s, meaning for every pound borrowed, they ended paying back £3 to £4 when you added up the interest. Also, let’s not forget all the money spent on keeping up the maintenance - money that has already been taxed. The upshot will be this would stop OAP’s selling their homes because it would discourage older people from trading down to a smaller home in retirement, making it even harder for younger families to find a big enough home to live in. Also, many people use the equity in their home to pay for retirement care, so if some of that is going to keep the debts down, that means the Government will have a larger social care bill in future years.
One school of thought could be taxing future tax-free gains for ALL homeowners, although given the Tory’s dependence on the more mature middle class (homeowning) voters, this might be a step too far for the Conservatives, so some have said this will be kicked down the road for Labour to sort. Sir Keir Starmer, who appears to be quite a straight-talking and even monetarily responsible Labour leader, is certainly a lot more voter friendly to the British electorate than Corbyn.
At the 2024 General Election, he could introduce what appeared to be a smart agenda of tax increases on unearned property capital gains and as long as it was presented in a clearly defined way, maybe turning the tables on the famous Tory General Election poster from 2010, when the Tory’s mocked Gordon Brown for doubling the national debt, implying it was Labour’s fault for the increase in national debt when in fact it was the Credit Crunch that caused it.
Starmer could soberly state Labour were the only party that could be trusted to make hard decisions to avoid burdening future generations with the £400bn ‘Tory’ coronavirus debt
One way or another, this £400bn (or £14,440.43 per household) is going to need to be paid back eventually; that means a rise in taxes. Nobody likes paying more tax - yet the truth of the matter is there is a lot of wealth tied up in property, especially with the older generation and so I suppose its introduction is inevitable in the future.
Please tell me your thoughts on the matter…
What’s Next for the Northampton Property Market?
There is no doubt that Coronavirus will affect the Northampton property market, but just how?
The ensuing economic challenges are going to impact the Northampton (and UK) property market, yet no one knows the real answer. The newspapers eulogise different opinions, but that's all they are – opinions and everybody's got a different opinion. The truth of the matter is we don't know and won’t know for another few months at least, if not more?
There have been some outstanding Government supportive measures both for tenants, landlords, home buyers and sellers (including a pause on evictions for tenants, and for landlords and homeowners, mortgage payment deferments and stamp duty reductions to make buying a home cheaper), and whilst these are only temporary, they have done their job, meaning there is a good level of activity in the Northampton property market.
A lot of that is pent-up demand from a couple of years of uncertainty because of Brexit. Also, we had the General Election in late 2019, so there have been so many reasons for people to sit on their hands. At the beginning of 2020, it was like a water hose ready to burst with the Boris Bounce in January and February. Then, just as things were beginning to get going in the Northampton property market, we had everything freeze up for months during lockdown. Since lockdown has been lifted …
the Northampton property market is open once again for business
and there is unquestionably some impressive activity both in
the sales and rental market
So, back to the original question and where are we going? I think what we will see is a subtle change to where people want to live because of the pandemic. People working from home has shown that the need to be in the big cities has reduced and as employees have realised, they can work very efficiently from home, plus they are happier and have a better work/life balance. Their employers are also happy as they get more work out of their staff and can reduce their costly office footprint in the cities. The same goes for Northampton tenants as they are wanting more from their rental homes. Three trends we have noticed is there is greater demand for properties with gardens, greater demand for Northampton landlords who will accept pets (as they now can have them as they work from home) and finally, tenants willingness to pay top dollar for ‘top of the range’ properties, whilst more basic and uncared for properties without all the ‘bells and whistles’ need to go for a discount. There certainly has been a flight to quality.
Yet, what worries me is the fundamental future uncertainty in 2021 and beyond. What will things look like, say in spring 2021, when the Stamp Duty reductions are phased out? Any property sold needs to have completed by the end of March 2021 to take advantage of the tax holiday, meaning you need to have sold your Northampton property by November 2020 at the very latest to ensure your property purchase and sale deal goes through in time (as it is taking on average up to 17 weeks between sale agreed and completion). This is where the difference between a great solicitor, brilliant estate agent and awesome mortgage broker compared to average ones will show. Good ones, when all three are working together for you, can get the sale through in 6 to 8 weeks, not the national average of 17 weeks, meaning if you are cutting it fine, you might not be able to take advantage of the tax savings in the spring. Give me a call if you want to know who the best of the best in Northampton are to ensure you don’t lose out on those tax savings.
The value of the average Northampton home
currently stands at £235,600
So, what is going to happen to the Northampton property market? It really depends on the economy as a whole and of course the property market is a large part of that. I know one thing that buy to let landlords and home buyers don't like is ambiguity and the British housing market has always lived and breathed on emotion and sentiment. People will only buy and sell property (and borrow the money to make those transactions happen) when they feel good. Are all these things like Stamp Duty holidays just putting off the inevitable? Are we heading for the mother of all property crashes?
Well, let me put sentiment and opinion aside for a second and look at the simple facts.
We have an increasing population,
yet we don't build enough houses
Since 1995, we have built on average 150,200 properties per year. The Barker Report said 2004 the country needed 240,000 per year to satisfy annual demand for new homes and whilst the number of new homes built in the UK last year rose 1% to a 13-year high, only 161,000 homes were built. That means over the last 25 years with the difference between actual homes built and the targets set out in the Barker Report, we have an inbuilt shortage of 2,245,000 homes, meaning …
since the Millennium, property values in
Northampton have increased by 154.2%
Other factors have contributed to that. The average age of a person leaving their parents’ home in the UK is 24.4 years and that has been dropping for a few years meaning more homes are required. People are also living longer (in 2000 the average person lived until 77.7 years and now it’s 81.1 years – doesn’t sound a lot until one considers for each additional year the average person lives in the UK, we need an additional 356,500 homes). Finally, we have got immigration. In the year ending March 2019, 612,000 people moved to the UK (immigration) and 385,000 people left the UK (emigration) – meaning a net increase of 227,000 people (or a requirement of c.100,000 homes to house them in one year alone). All those factors in themselves mean…
we have more demand for Northampton property than we have
supply and that's not going to change any time soon
Property markets are driven (like all markets) by supply and demand so I believe Northampton property values can only rise in the long term. The question is whether Northampton people will have the sentiment and confidence to borrow money on a mortgage and invest in Northampton property, yet at the moment with ultra-low interest rates, borrowing money to buy a home has never been so cheap and if you are in it for the long-term (which you should be with property) then I think it's good news.
One piece of good news is that mortgage lenders are willing to lend up to 90 per cent loan to value mortgages for first time buyers (and in some rare cases 95 per cent), albeit with a lot of strings attached ... yet this is a good sign as the banks and building societies wouldn’t be lending at these levels if they were too scared.
Investing in property, be it for yourself to live in or buy to let is a long-term game. We might see an uplift in prices in the short term because of the demand mentioned above, then again, we might see a dip in 2021 - yet again for the reasons mentioned above - until we start to build new homes to the scale of 300,000+ a year (something that has never been achieved since 1969), the long-term picture appears to be good. Be you a Northampton landlord, Northampton house seller or Northampton buyer, you have to be a lot more strategic and thoughtful about what you are going to do. If you would like to pick my brains, drop me a message on social media or pick up the phone.
So, those are my thoughts, tell me your thoughts for the future of the Northampton property market?
Every Northampton Homeowner & Landlord to Receive up to £5,000 Grant for Roof Insulation & Double Glazing from September
The Chancellor announced on Wednesday 8th July in his mini Budget some interesting news for Northampton homeowners and Northampton landlords. Rishi Sunak is going to give ‘The Green Homes Grant’ of up to £5,000 to cover two-thirds of the costs of environmentally friendly upgrades to your Northampton property, with the homeowner covering the other third. There are also enhanced grants of £10,000 for the poorest households where 100% of the cost will be met by the Government.
This is nothing new mind you. The coalition Government in 2013 announced The Green Deal. That deal was in theory to have been a help for the builders, energy saving and home improvement industry, as the Government hoped many would take up environmentally friendly improvements to save energy (and ultimately greenhouse gases). Yet by the time it was brought to an end two years later only 14,000 households had applied, costing the taxpayer £238m (or £17,000 per household). That doesn’t sound good value to me – yet who am I to comment?
Anyway let’s not be negative, as improving our homes does makes sense – after all, research shows Brits have the draughtiest homes in Europe. A recent survey suggests UK homes “leak” heat up to three times more quickly than more energy-efficient homes on the continent.
Data from 80,000 smart thermostats across the EU were reviewed to measure how quickly a home at 20°C inside cooled once the heating was turned off (when the outside temperature was 0°C). Within 5 hours, the average British home dropped by 3°C, the French came in second at 2.5°C yet the Germans came in at just 1°C, meaning British homes clearly need more heating (i.e. greenhouse gases) to keep them warmer.
The chancellor has allotted £2bn to the scheme, which pays for two thirds of the cost of the upgrade and stated that more than 650,000 homes would be upgraded. This could save those households a total of £195m a year in heating bills (or the equivalent of £300 a year per household), cutting greenhouse gases and saving jobs in the construction industry. The grants can be applied for from September and is open to Northampton homeowners and private sector Northampton landlords. Applications must be made before March 2021 and the Treasury have stated about half of the fund would go to households with the lowest incomes (how low is still to be announced), with an enhanced grant of up to £10,000, saving them up to £600 per annum each on their heating bills.
The average Northampton home annually produces 3.644 tonnes of CO2 , compared to the national average of 4.101 tonnes
Due to the particular individual nature of the properties in Northampton and their construction type, with suitable improvements in insulation, double glazing and draught proofing, Government statistics state that this could be reduced to 2.204 tonnes for Northampton homes if suitable work (as per the Green Homes Grant) was carried out.
Why is this important? Well UK householders spend £34.735bn a year on their electric and gas bills – this is a lot of money. In fact, looking specifically at Northampton properties …
Northampton householders spend £589.83 per year on
heating their homes (compared to the national average of £669.34 per year)
Yet, if Northampton householders carried out the energy improvements that ‘The Green Homes Grant’ suggests their energy bills for heating alone would reduce to £453.63 per year ... quite a saving over a decade and beyond (enough to buy a decent holiday – whatever one of those is!).
So, with Northampton homeowners and Northampton landlords being able to spend the grant on loft, floor and wall insulation, low carbon gas boilers, heat pumps, double or even triple-glazed windows, energy-efficient doors and low energy lighting … everyone should win – the environment, the economy and household budgets. More details on the scheme should be released by the Government in August.
Northampton Homebuyers & Landlords Set to Save £6,466,820 in Stamp Duty Over the Next Nine Months
The British are infatuated with owning their own property and politicians know that. Margaret Thatcher used it as a vote winner in 1979 when she allowed council house tenants to buy their own home. Coming to the present day, Boris Johnson’s Conservative government have anxieties that the Brits have not been buying nearly enough homes lately and, as with all countries in the world, the British property market was put ‘on ice’ for several months to help contain the Coronavirus, exacerbating the problem.
The Chancellor, Rishi Sunak, announced on Wednesday plans to boost the property market by momentarily scrapping Stamp Duty Tax (a tax paid by homebuyers) when they buy a property that costs less than £500,000.
Interestingly, Stamp Duty was originally introduced in 1694 as a way to raise funds for The Nine Years' War (1688–1697) against Louis XIV of France and applied to property and some legal documents.
Why is this important? Well the Government recognise that when the property market is working well, the economy also tends to work well, yet one of the barriers to people moving home is Stamp Duty. Even before Coronavirus, Brits were moving 40.21% less than they were at the start of the millennium, and now with this dreadful situation, the natural reaction is for people to stay put in their own homes, meaning another potential nail in the coffin for the economy.
Stamp Duty has raised not an insignificant £166.53bn since 1998, impressive when you consider the NHS costs £129bn per annum. Looking at more recent figures, the Government currently raise £1.045bn per month from Stamp Duty Tax and this statement will remove a good chunk of that from the Chancellors coffers each month, yet the Government knows a healthy property market will help the wider economy.
As Stamp Duty is a transaction tax, it restricts labour market mobility, making people who are thinking of switching jobs think twice before moving. Stamp Duty also holds back elderly homeowners from downsizing to smaller homes, which is an issue for the UK, as we don’t have enough homes to meet supply and also curtails first time buyers as it forces them to use some of the savings on the tax, as opposed to using for a deposit.
Before the changes, the Stamp Duty thresholds were as follows:
- Zero percent up to £125,000
- Two percent of the next £125,000 (the portion from £125,001 to £250,000)
- Five percent of the next £675,000 (the portion from £250,001 to £925,000)
- Ten percent of the next £575,000 (the portion from £925,001 to £1.5 million)
- 12% of the remaining amount (the portion above £1.5 million)
and between the 8th July 2020 and 31st March 2021
- Zero percent up to £500,000
- Five percent of the next £425,000 (the portion from £500,001 to £925,000)
- Ten percent of the next £575,000 (the portion from £925,001 to £1.5 million)
- 12% of the remaining amount (the portion above £1.5 million)
Landlords and Buy to Let Landlords will also benefit from these reduced rates, yet will still have to pay their additional premium for second homes (as they have since April 2016).
To give you an idea how significant this is, if these rules had been in place exactly a year ago for Northampton properties purchased under £500,000 (i.e. between 8th July 2019 and 31st March 2020).
Stamp Duty would not have been paid on 2,635
Northampton properties, worth in total £652,719,700
Anyone buying any home in Northampton over £500,000 are also winners in this, as they will save having to pay the first £15,000 in stamp duty (under the old scheme). This is because during these 9 months, stamp duty is only paid on the difference over £500,000 (so if you buy a property for say £620,000 – one only pays the stamp duty on the difference between £620,000 and £500,000 i.e. £120,000).
I’m all for reducing Stamp Duty, which is imposed progressively at higher rates the higher a property costs (as you can see from the tables above). Yet, short-lived changes to property taxation risk warping the property market and generating a ‘property market hangover’ in Spring 2021. I am part of a group of 2,500 estate and letting agents from the UK, and most of us were running at 150% speed before this announcement, coping with the post Coronavirus explosion in demand.
Now it seems that the ‘feast’ will continue until the end of March 2021 as many more people will move to take advantage of the cut in tax. However, some are suggesting this could lead to ‘famine’ down the line as it will stop people moving into the late spring and summer of 2021.
History tells us different stories on the influence on transaction volumes from changing Stamp Duty rates. In 1991 the Tory’s raised the Stamp Duty threshold at which house buyers started paying and Gordon Brown did so in 2008 when we went into the Credit Crunch. More recently, both George Osborne and Philip Hammond fine-tuned Stamp Duty so that landlords had to pay an additional Stamp Duty Premium after March 2016 whilst first-time buyers pay less Stamp Duty and the purchasers of more expensive homes (over £1.5m) pay more.
The Stamp Duty changes for landlords in 2016 affected the property market only for a short while and by the autumn, transactions levels had returned to normal. However, in 1991, John Major’s Stamp Duty change encouraged home buyers to bring forward home purchases but nevertheless the property market ground to a standstill again once the benefit ended (although the steps up the 1990’s Stamp Duty levels were much harsher as the tax applied to the whole purchase price, not the margin steps as it had in the 1990’s).
So how much money will Northampton people save when buying a home under £500k?
The average Stamp Duty paid by those Northampton homebuyers in the 9 months between 8th July 2019 and 31st March 2020 was £2,454
Being objective, I can see why the Chancellor could see this as a suitable way to motivate spending because when people move home, they are more inclined to spend comprehensively on property renovations and the services of solicitors, home removal people, tradesmen and estate agents. So, drastically reducing Stamp Duty will undoubtedly help the UK economy, or at least contain some of the damage from the Coronavirus.
Also, the experience of being in lockdown will have confirmed to many Northampton people that they need a bigger home or one with a bigger garden. I also suspect other people may be able to work from home on a more long-lasting basis, meaning there could be a shift from the larger cities to outlying towns and even a move to the countryside.
So, these are my thoughts, what are yours?
The Northampton Post Lockdown Property Market
What have we learned in the first month?
From talking to most of the Northampton estate and letting agents and our own findings, it might surprise many of you that new enquiries from homebuyers, tenants, landlords and home sellers have been at record levels since lockdown was lifted from the property market in mid-May.
There are a number of reasons for this. Firstly we had the pent-up demand for Northampton property from the Boris Bounce in January and February. Next, many Northampton people were planning to move this spring yet were prevented doing so because of lockdown, and finally, surprisingly, an advance wave of home movers seeking to bring their Northampton moving plans forward because of a fear of a second Covid-19 wave later in the year.
So, what does all that look like and how does it compare to the last 12/18 months?
Data from Yomdel, the live chat and telephone answering service for a quarter of UK estate and letting agents, is able to track objective and more current information from across the UK on what is really happening. Each week, they are dealing with thousands of enquiries including:
They have created a rolling weekly average of those enquiries for the whole of the UK for the 62 weeks before the country went into lockdown. Then they compared that 62 week average with specific time frames, namely the 10 weeks of the run up to the General Election, the 8 weeks of Post Boris Bounce in January and February 2020, the weeks of lockdown in March, April and early May and then finally, from mid-May, the post lockdown.
You might ask why tracking estate and letting agency enquiries is so important?
Enquiries in letting and estate agencies are the beating heart of the property market – they are the ECG machine of the estate and letting agency. Of course house price data has it’s place and is lauded by the national press as the bellwether of the property market, yet it takes 6 to 9 months for the effects of what is happening today to show in those house price indexes, whilst these enquiries are what is happening now.
Have a look at the data in the graph and table, it can be seen in the 8 weeks up to the General Election, every metric was down. Next, the post Boris Bounce saw house seller and house buyer leads increase yet note how low tenant enquiries were (hardly any change from the run up to the election), everything dipped during lockdown as expected, yet look at all the metrics post lockdown … amazing! (e.g. if a number in the graph/table below is say -25%, that means its 25% below the rolling 62 week average, yet if it were +20%, then that would mean it would be 20% more than the rolling 62 week average)
The numbers speak for themselves!
So, what is happening in the Northampton property market? Well, there is plenty of activity in the Northampton property market, yet that doesn’t mean everything is back to normal. Enquiries are an important metric, yet another way to judge the health of the property market is to look at the number of property transactions (i.e. people moving).
Now the Land Registry data isn’t quite as exhilarating, yet it is less volatile. Nationally, it shows that property transactions were at their lowest level since its records began in April 2005. The seasonally adjusted estimate of UK residential property transactions in April and May 2020 was 90,210, 53.4% lower than the 193,500 transactions of April and May 2019. Again though, this was because of the restrictions on moving during Covid-19. The stats for Northampton are still to be released yet rest assured I will share them in due course.
Looking again at what is happening now, when I look at the number of properties for sale…
416 Northampton properties have come onto the property market in the last 14 days alone, and of those, 61 are already sold subject to contract
So, what of the future of the post-lockdown Northampton housing market? While a stern recession seems almost guaranteed, a housing market crash is not. Many newspapers are predicting property values to fall in 2020, then rise reticently from the ashes in 2021. The fact is, nobody knows. The property market is driven a lot by sentiment. Buying a home is not like buying stocks and shares – it’s a home to live in … and those Northampton landlords who are looking for an investment opportunity, often let their heart rule the head (again sentiment) when investing in property.
Property always has, and always will be a long-term investment. Many of you Northampton people reading this, especially potential Northampton first time buyers, have been putting off buying your first home because of Brexit, now its Covid-19, and in a few years, it will be something else. There will always be ‘something else’… and you could get to your 50’s and 60’s, still renting, waiting for the ‘next thing’ to pass before you buy … and end up buying nothing.
Nobody knows what the months or years ahead will bring ... yet what I do know is, people will always need a place to live. Please let me know your thoughts in the comments. Tell us what your experiences are as a Northampton landlord or homeowner, tenant or buyer so we can all learn from each other.
Is This the Beginning of the End for Buy to Let in Northampton? …. and should Northampton landlords & Northampton homeowners be worried?
In 2019, the private rented sector accounted for just over four and a half million households or 19.9% of UK households, no change from the year before. Interesting, when compared to the proportion of private rented households in the 1980’s and 1990’s, when the proportion of private rented households was stable at around 9.5% to 10.8%.
Most of that growth in the private rented sector came in three main spurts. The first growth spurt was between 1999 and 2003 and that was caused when property values were increasing at 20% per annum, the second came from the migration of 1.69m people from the EU8 countries after 2004 and the final growth spurt came about because of the property crash of 2008/9. When I look at the local stats…
6.1% of Northampton properties in 1991 were privately rented,
whilst the most recent stats stand at 17.7%
Apart from social housing, the other pillar of home tenure is owner-occupation. Owner occupation is made up of two separate groups: outright owners and those who own their home yet are buying the property with a mortgage.
In 1991, 20.4% of Northampton households owned their property outright and 50% of Northampton households were buying with a mortgage, whilst current stats show 25.4% of Northampton households are outright owners and only 37.5% are buying their Northampton home with a mortgage
Looking at these numbers, two things are clear-
So, on the face of it, everything looks rosy for Northampton buy to let landlords with the private rented sector growing ever upwards.
This is not the case though, because these stats on private rented and homeownership on Northampton are from the last census. However, the Government have a number of in-depth annual surveys on the property market and since 2016, the proportion of privately rented properties has remained stagnant at between 19% and 20%. Also, over the same time frame, the proportion of homebuyers with a mortgage has increased quite considerably from 30.7% of all households nationally to 35.5% last year. This increase is mainly attributed to an increase in first time buyers.
So, why have we seen an increase in the number of first-time buyers?
Firstly, the government introduced their Help to Buy Scheme in 2013 helping first time buyers get on the property ladder with interest free loans and mortgage guarantees. Secondly, the wide availability of 95% mortgages since the mid 2010’s (meaning first time buyers only need to find a 5% deposit), and finally the continued increasing reliance of deposits from the ‘Bank of Mum and Dad’ have helped to support this growth.
Interestingly, age is an important factor in these stats, as it’s the 25 to 35-year olds that have seen the biggest increase in home ownership, yet it’s decreased for those in the 35 to 45-year old bracket.
So, what does all this mean for Northampton landlords and Northampton homeowners?
In the next six months, I believe the growth in first time buyer numbers will ease slightly. The pent-up demand of the Boris Bounce in January and February has now been released, and whilst the early signs are very good, we are still to see the effects of the curtailing of the furlough scheme on the people’s ability to move home.
Many doom-mongers were predicting the banks would remove 95% mortgages after Covid-19, yet looking on a well-known comparison website, at the time of writing, there were 183 ‘95% mortgages’ available to first time buyers, with eye watering low rates of 1.53% with the Halifax on a 2 year fixed rate and 5 year fixed rate with the Skipton at 1.83%. The Bank of Mum and Dad might be a tougher nut to crack for first time buyers’ deposits - the fall in the FTSE and the repercussions this will certainly have on older households’ pensions income may restrict its availability.
This means even though the Northampton property market is doing reasonably well, Northampton homeowners wanting to sell shouldn’t get carried away and ‘over-egg’ their asking prices. The information available today at all buyers’ fingertips means your property can so easily be overlooked as being overpriced, and thus become ignored.
My advice to Northampton landlords is, even though the proportion of private rented properties isn’t growing, in real numbers it is, as we created 230,000 residential homes in the country last year alone, so we aren’t seeing a mass exodus out of private renting.
Yet, now might be the time to consider spending money on upgrading what you already own instead of buying another property. Depending on the type and location of your Northampton rental property, the return on investment of certain upgrades can be in the order of 20% to 30% per annum. Don’t fall for the trap many Northampton landlords fall into and upgrade without speaking to a property professional. Whether you are a client or not, I am always here at the end of the phone to give you my advice and opinion.
Please do let me have your thoughts on the matter – thank you in advance.
Are Buy to Let Landlords to Blame for Northampton’s Housing Crisis?
Isn’t it funny that nobody boasts they are a buy to let landlord anymore? Roll the clock back to the early millennium and you couldn’t go to the local golf club or shop at a Waitrose without someone dropping buy to let into the conversation as easily and as often as the weather.
Yet now, Northampton buy to let landlords have almost pariah status, as they place a brown paper bag over their head when they enter a letting agency, lest they be recognised as such. They can easily be recognised though, as the average age of a UK tenant is 32 years old, whilst the average age of a UK landlord is between 40 and 61 years old.
Joking aside, if it wasn’t for buy to let landlords – Northampton and the UK would be in a rather difficult position when it comes to housing our local people. Many people believe that if you take buy to let landlords out of the loop of the UK property network, then it would be the land of milk and honey for first-time buyers priced out of the market. Those Northampton landlords provide those Northampton tenants with a mixture of homes to live in and using market forces, ensure the right number of Northampton homes are available. In fact, the stats show that…
Northampton buy to let landlords provide 15,921 Northampton homes for 38,901 Northampton tenants
Yet the retort from many tenant organisations would be that Northampton landlords are wealthy middle -lass people, voraciously exploiting the failing Northampton property market for their profit and greed. Of course, the demographic of an average Northampton landlord is they tend to come from more fortunate backgrounds, with 3 in 4 of Northampton landlords aged between their late 40’s to late 60’s and 4 in 10 having a degree level qualification.
It also wouldn’t surprise anyone to learn that those who invest in buy to let Northampton property are likely to be better off than those who have not yet been able to buy a home. Yet, that is the nature of the country we live in and it’s a consequence of a competitive free market economy (the alternative didn’t go too well in Soviet bloc). Indeed, asserting that the buy to let landlords represent a transfer of wealth and money from tenants to landlords is like saying that the pub represents a transfer of wealth from drinkers to the pub landlord.
Don’t get me wrong, the tax loopholes for landlords up until 3 or 4 years ago were a little ‘too’ generous, still these were closed by the Tory’s themselves. However, should the Government try to place even more burden on landlords like some are suggesting, forcing them to sell, I am certain some Northampton first time buyers would find it cheaper to buy their first Northampton home. This is because they wouldn’t be in competition with Northampton landlords to buy the starter homes both types of buyers crave, meaning house prices would drop (simple economics would dictate that).
Yet, if the supply of Northampton privately rented homes contracted at a greater rate (because landlords were selling up) than demand, this would make renting more expensive (again simple economics) for the vast majority of Northampton tenants who were still renting a Northampton home. Irrespective of whether property values dropped, it might take years for a tenant to save for a deposit, whilst for the rental properties the landlords wants to sell, the tenants only need to be given two months’ notice to leave so the property can be put on the market.
One might ask why don’t the local authorities build more council houses?
Well, Government funding has been tight because of the Credit Crunch deficit since 2009 and going forward because of the current situation with Covid-19, it will get even worse. In fact, of the 617,230 new homes built in the country over the last 4 years, only 8,270 or 1.33% were built by local authorities, meaning only just over 1 in 100 of all new properties built in the last 4 years were built by the local authorities.
This is important as the number of people in rented property has been growing over the last 20 years. In fact, when you look at all the tenants in council and private rented accommodation locally…
33.7% of Northampton people live in a rented property
Interestingly, the demographic of a council house tenant is totally different to that of a tenant in a private rented home. The average age of a council house tenant is 52 years old (compared to 32 years for a private rented tenant), so it appears the older generation have the upper hand on council houses. So again, who exactly is going to house the people of Northampton, especially the younger generation that can’t afford to buy?
Local authorities haven’t got the money, housing associations get their money from central Government, so the only other source of housing is private landlords. The problem existed before private landlords filled the gap. No doubt many Northampton landlords have certainly gained from the problem, especially between 2000 and 2007, yet at the same time, they have helped home millions of people.
Consequently, are Northampton landlords greedy and selfish? For most law abiding Northampton landlords, who look after their tenants and their properties really well, nothing could be further from the truth… and yes they have made some money – yet if you take into account property maintenance, mortgage finance, taxation, agent fees, surveys and inspections – it’s really not the gold mine many think it is.
Not until all the political parties stop using the housing issue as a political football will this issue be sorted. For example, it makes sense to allow mass building in the South East, again driving up supply and making property more affordable, yet that would wind up the Tory voting home county heartlands. It’s a shame because we do have the room to build more homes, in fact…
Only 1.2% of the country has houses built on it
The country needs a massive root and branch change to sort things out, yet I have grave misgivings that any politician has the stomach or the political resolve to do anything about it.
If Covid-19 does affect the confidence in the property market that will in fact be good news for Northampton landlords, as long as the Government doesn’t put its big ‘size 9’s in to the rental market by taking even more money out landlords pockets.
Historically, ambiguity in the property market typically results in an expansion in activity in the private rental market. Prospective home movers will rent in between selling their home and buying the next one, while budding first time buyers typically postpone their purchase and stay in the private rental market for marginally longer … which all increases demand for rental property.
Is This a Good Time to Buy Your First Home in Northampton?
Should you wait to buy your first home in Northampton or buy now? What sort of mortgages are available? What sort of deposit is required? These are questions all Northampton buyers are asking at the moment, yet this week I would like to focus on Northampton first time buyers and what it means directly and indirectly to Northampton homeowners looking to move up the Northampton property ladder and Northampton buy to let landlords.
Well quite frankly, to answer that question it’s contingent on what Northampton property you are looking to move into and even more significantly, how long you are hoping to live in that property.
We have many armchair economists and even professional economists predicting Armageddon when it comes to the property market, yet the Northampton (and UK) property market is essentially very sound. Don’t forget the Chancellor himself, George Osborne warned that if we voted to leave the EU two things would happen. Firstly, the UK property market would crash and property values would drop by 18% in the two years after the vote. Secondly, there would be an ‘economic shock’ to the country’s economy that would increase the cost of mortgages (through increased interest rates as there would be a run on the Pound). UK GDP rose by £132bn in the two years after the referendum and interest rates actually dropped locally, with regard to property values …
Northampton house prices rose by 14.2% in the 2 years following the Brexit vote
Lloyds have predicted an enormous 30% fall in property prices over the next 36 months whilst Savills have suggested a short dip of 5% during the summer, based on very low transactions numbers, with property prices bouncing back to be just over 15% higher in 5 years’ time. This assumes that the UK plc economic downturn is short & sharp, and that no substantial gap opens up between supply and demand in the property market (i.e. everyone doesn’t dump their property market all at the same time).
Northampton Property Values after the 2008 Credit Crunch crisis plummeted 15% between 2008 and the end of 2009.
Yet, the circumstances of the 2008/9 property crash were fundamentally different to today. Many ‘armchair economists’ assume there will be a re-run of the 2008/9 and 1988 property crashes in the coming 12 months in terms of house value falls. Yet, dissimilar to the last recession, this dip has not been led by previous years of strong property price growth like the other two crashes. House prices in many parts of the UK have been down in the last 12 months.
You would think Northampton first-time buyers who have already saved their deposit could grab a bargain in the coming months, you would believe they would have less competition in the market because of landlords holding back buying additional rental properties. This is because of the press speculation that rent arrears are sky high from tenants who are unable to pay their rent. Yet evidence from many professional bodies in the private rental sector state rent arrears across the whole of the Country are appearing to be very low indeed, despite Covid-19.
Interestingly, the firm Yomdel who handles ‘web live chat’ and ‘phone support’ for thousands of estate and letting agents have reported national activity is higher than the two months of the Boris Bounce (in January and February 2020). The number of new buyer enquiries for the last two weeks is double (108.9% higher to be precise) than the 2019 yearly rolling average. New landlord enquiries are 32.1% higher than the 2019 average and tenants are 150.1% higher than the 2019 average ... these are all great signs and go against the doom monger economists.
My best advice to all Northampton property buyers is, be they second time buyers, first time buyers, landlords … whatever number buyers, they should buy with a medium-term view of future Northampton property values, instead of an expectation of always looking to making a quick few pounds flipping a property (i.e. selling it quickly).
Let’s not forget that mortgage interest rates are another important factor: they are at a 325-year low, so borrowing money has never been so inexpensive. If you know you are going to be living in your first (or second) Northampton home for five years and you want the peace of mind of knowing precisely what your mortgage payments will be, then it’s very attractive. At the time of writing, Barclays are offering any first-time buyer a 95% mortgage on a 5-year fixed rate of 2.95%. The average value of an average terraced house in Northampton is £199,400 and so with the 5% deposit of £9,000 on a 35-year term the …
Mortgage payments on a typical Northampton terraced house would only be £727 per month (i.e. much cheaper than renting)
Many lenders are lending money even if you are on furlough, yet you may find you won’t be able to borrow as much pre Covid-19. Interestingly, some mortgage companies will even take into account total income, where your employer is topping up the Government’s furloughed amount, whilst other lenders will consider mortgage applications on a case-by-case basis. The best advice I can give is, don’t assume what you can or can’t borrow. Speak to a whole of market mortgage broker, to see what is possible – not what your friend on Facebook tells you, what you can or can’t borrow.
You only need to put down a 5% deposit for the property you would like to buy
If you think about it, it’s inconsequential if Northampton property values drop or not, or if they do drop whether they bounce back quickly (or not as the case maybe) because it’s impossible to know the bottom of the property market. I would say if you find the right Northampton property for you, at the price that feels right, that will be your home together and you are going live in that Northampton property for the next five to ten years, it’s not a bad time to be buying. It is like waiting for the next piece of tech – there will always be a better model or an assumed better time. We are talking about your home here – a home for you and your partner and family, be that your kids, dog, cat, pet or favourite pot plant because …
Spending money on rent is all wasted money – at least when you buy your own home, you start to pay your mortgage off from day 1
So many first-time buyers use the Bank of Mum and Dad to help with their deposit, yet I have spoken to many parents who wouldn’t want to interfere in their mature children’s life and subsidise day to day expenditure, yet are embarrassed to offer their help with the deposit. If you don’t ask …you don’t get!
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